Have you incurred certain expenses towards the renovation of your residential dwelling? Do you wish to take a tax credit for these expenses from the Canadian Government? If you are qualified to do this, you can lower your taxable income. Here is all you need to know about the Home Accessibility Tax Credit (HATC) in Canada.
What Is the Scheme of Home Accessibility Tax Credit in Simple Language?
This scheme, introduced in the Budget 2015, stated that:
- Starting from the year 2016 (that is, in 2016 and all the subsequent years)
- The expenses incurred towards:
- Performance of a qualified renovation work and/or
- Acquisition of goods
- Regarding a qualified dwelling
- Will be eligible for Home Accessibility Tax Credit (HATC)
- Up to a maximum limit of $10,000 in a year
The Home Accessibility Tax Credit (HATC) is a non-refundable tax credit, and one can use it to reduce their taxable income by a maximum of $10,000* every year.
Note that the benefit of such a tax credit is available only at the lowest rate of personal tax, which is 15%. In effect, this translates into a maximum tax savings of $1,500 ($10,000 x 15%) in a year.
* The Canadian federal budget 2022 has proposed to enhance the maximum limit of the Home Accessibility Tax Credit from $10,000 to $20,000.
If implemented, starting from 2022 (i.e., 2022 and all the subsequent years), you will be eligible to claim a maximum deduction of $20,000 from your taxable income. The highest tax savings will also increase from $1,500 to $3,000 ($20,000 x 15%).
What Are the Various Conditions Associated with The Home Accessibility Tax Credit (HATC)?
Like all the federal laws, the rules associated with the HATC are also complex, and its credit depends upon fulfilling several conditions. Let us explore and understand all of them:
1. Who Is a Qualifying Individual?
To claim HATC, a qualifying individual is any person who is:
- Of the age 65 years or above before the end of the current taxation year
- Qualified or eligible to claim the disability tax credit during the current taxation year
If two qualifying individuals living in one principal residence, both can claim a maximum Home Accessibility Tax Credit (HATC) of $10,000. This limit applies to a “principal residence” and not qualifying individuals.
2. Who Is an Eligible Individual?
While enjoying the Home Accessibility Tax Credit (HATC), an eligible individual can claim this tax credit and use it to reduce the taxable income.
For HATC, an eligible individual is:
- Common-law partner, and
- Supporting relatives of a qualifying individual
3. Who Are Supporting Relatives (Eligible Individuals)?
A person can claim the Home Accessibility Tax Credit (HATC) as a supporting relative.
The following people are qualified to be supporting relatives:
- A person who has claimed the following amounts:
- Eligible dependent amount since such a person was not married and not in a common-law partnership or
- Caregiver amount or
- The amount for an infirm dependent age 18 or older for the qualifying person, who:
- Is 65 years of age or older at the end of a year
- Is not eligible to claim the disability tax credit
- It depends on the supporting relative because of mental or physical infirmity
- A person who could claim all the amounts mentioned above because of the qualifying individual:
- Had no income or
- Person must be at least 18 years of age in the current taxation year
4. What is Qualifying Renovation?
A qualifying renovation refers to an enduring alteration, which:
- Helped the qualifying individual in:
- Gaining access to the eligible dwelling
- Becoming mobile or functional within the “eligible dwelling.”
- Reduced the risk of harm to the qualifying individual.
- While residing in the eligible dwelling, or
- While gaining access to the eligible dwelling
5. What Is Eligible Dwelling?
You can claim the HATC for qualified expenses incurred for the eligible dwelling.
A dwelling will be eligible for claiming HATC if:
- It is a housing unit and is in Canada.
- It is the principal residence of the qualifying individual in the tax year.
- It is owned (either jointly or otherwise) by the qualifying individual or the qualifying individual’s spouse or common-law partner.
If the qualifying individual does not own a principal residence, then any dwelling will be eligible if it is the principal residence of the qualified individual.
An eligible dwelling is:
- The land upon which the housing unit stands (usually of ½ hectare (1.24 acres))
- Any portion of the adjoining land
A qualifying individual can have over one principal residence in a tax year, but the maximum HATC available will be subject to the maximum limit of $10,000.
How Can You Claim Home Accessibility Tax Credit (HATC)?
You can claim A Home Accessibility Tax Credit (HATC) if you are a qualifying individual or an eligible person. The manner of claiming HATC depends upon the type of return you are filing:
With Electronic Return:
- You will be required to include a new schedule that will allow you:
- To list your eligible expenses and
- To calculate the HATC amount, which you can claim.
- To claim HATC, you will be required to add a new line to Schedule 1, Federal Tax.
- If there are multiple claimants, each claimant will have to submit a separate schedule.
With Paper Return
- You need to attach the new HATC schedule along with your paper return.
- You are not required to support your claim via receipts and documents.
- However, you must preserve them and even keep them handy and produce them before the authority when they ask for it